African Regional and Sub-regional Organizations:Assessing their contributions...
China's Growing Role in African Development
1. China’s African Aid
Transatlantic Challenges
Deborah Brautigam
International Development Program
School of International Service
American University
Washington, DC
3. China’s African Aid: Transatlantic Challenges
A Report To the German Marshall Fund Of The United States
April 2008
Deborah Brautigam
International Development Program
School of International Service
American University, Washington, DC
The Rise of China in Africa............................................................................................. 3
Competing Views About Chinese Aid.......................................................................... 5
China’s Aid: Continuity and Change............................................................................. 7
The Chinese Aid System................................................................................................ 14
Chinese Aid in Operation............................................................................................. 20
Chinese Aid: Issues for Transatlantic Policymakers.................................................. 25
Engaging China.............................................................................................................. 30
Toward New Partnerships............................................................................................. 32
This paper was prepared for the German Marshall Fund of the United States’ Program on Aid Effectiveness. I acknowledge with
thanks the support of the GMF in funding my research in Africa, December 2007–January 2008. I also thank those who made
comments on drafts of the paper, including, David Hirschmann, Frans Lammersen, Meghan Olivier, Paul Colombini, Janet West,
Jonathan White and Zha Daojiong.
4.
5. The Rise of China in Africa 1
China’s African Aid: Transatlantic Challenges 3
The rise of China as a very visible actor in Africa is
one of the most striking features of the first decade of
the new millennium. Trade between the two regions
is projected to reach $100 billion before 2010, ten
times the 2000 figure. Accumulated investment by
Chinese firms doubled from $6.27 to almost $12
billion between 2005 and 2006, and Chinese banks
have offered attractive (and sometimes very large)
packages of loans to finance trade, investment, and
development. Many African governments welcomed
China’s announcements of further aid, trade, and
investment at a major China–Africa summit in
November 2006 in Beijing. At the same time,
the rise of China has been greeted with fear and
apprehension by many in the United States, Europe,
and Africa who see this strong interest more as a
threat than an opportunity.
Although trade and investment are two central
means by which China and Africa engage this
paper focuses primarily on development finance
and official development assistance: the broad
spectrum of activities called “foreign aid.” For
the most part, the donor community focused on
Chinese aid only recently, and in many cases only
with the publicity surrounding the November 2006
Forum on China–Africa Cooperation in Beijing,
where Chinese president Hu Jintao pledged to
double China’s aid to Africa by 2009 (Box 1). He
also promised to offer $3 billion in preferential
loans and $2 billion in preferential export buyers
credits, establish three to five special trade and
economic zones, allow more than 400 kinds of
goods into China duty-free, and set up a $5 billion
fund to support investment by Chinese firms in
African economies. Later that year the president
of the China Export Import Bank (Eximbank), Li
Ruogu, announced that he hoped to disburse up to
$20 billion in finance for African projects over the
next three years.
Box 1: Address by Chinese President
Hu Jintao, Beijing Summit of The
Forum on China–Africa Cooperation,
4 November 2006
To forge a new type of China-Africa strategic partnership
and strengthen our cooperation in more areas and at a
higher level, the Chinese Government will take the follow-ing
eight steps:
1. Double its 2006 assistance to Africa by 2009.
2. Provide US$3 billion of preferential loans and US$2
billion of preferential buyer’s credits to Africa in the
next three years.
3. Set up a China-Africa development fund which will
reach US$5 billion to encourage Chinese companies
to invest in Africa and provide support to them.
4. Build a conference centre for the African Union to
support African countries in their efforts to strengthen
themselves through unity and support the process of
African integration.
5. Cancel debt in the form of all the interest-free govern-ment
loans that matured at the end of 2005 owed
by the heavily indebted poor countries and the least
developed countries in Africa that have diplomatic
relations with China.
6. Further open up China’s market to Africa by increas-ing
from 190 to over 440 the number of export items
to China receiving zero-tariff treatment from the least
developed countries in Africa having diplomatic ties
with China.
7. Establish three to five trade and economic coopera-tion
zones in Africa in the next three years.
8. Over the next three years, train 15,000 African profes-sionals;
send 100 senior agricultural experts to Africa;
set up 10 special agricultural technology demonstra-tion
centres in Africa; build 30 hospitals in Africa
and provide RMB 300 million of grant for providing
artemisinin and building 30 malaria prevention and
treatment centres to fight malaria in Africa; dispatch
300 youth volunteers to Africa; build 100 rural schools
in Africa; and increase the number of Chinese govern-ment
scholarships to African students from the current
2000 per year to 4000 per year by 2009.
6. Bretton Woods institutions and the G8 and OECD
members. Yet all of these organizations admit to
operating largely in the dark in their assessment of
the risks and opportunities presented by China’s aid
and development finance.
This paper aims to fill an important gap by
explaining and analyzing the Chinese system
of aid and development finance, focusing on
Africa. Its purpose is not to take sides in the
many debates over these issues, but to inform
transatlantic discussions about China’s role as a
development actor. This should assist policymakers
and others concerned about development and
poverty in Africa to better understand the
nature of China’s impact as a donor. This should
contribute to transatlantic efforts to develop
constructive approaches to engaging China as
a newly prominent feature of the evolving aid
architecture. The paper draws on fieldwork in
Beijing (July–August 2007) and in seven African
countries over the past 25 years (most recently in
Sierra Leone, Tanzania, and Zambia in December
2007 and January 2008), as well as published and
unpublished studies and reports.
The paper opens by presenting some of the
contrasting narratives on Chinese aid. It goes on to
explain what aid is in the Chinese context, how it
relates to Chinese domestic and foreign policy, how
it operates, and how it is evolving. It then addresses
a series of issues often linked to Chinese aid. Some
of these (Sudan, Zimbabwe) are, in fact, not really
about “aid” but about China’s extensive economic
engagement with rogue regimes. Others are put in
comparative and dynamic context, with an effort
to show how each issue has recently evolved. The
paper concludes with a series of thoughts about
fruitful transatlantic approaches to engaging China.
China’s new role as a major source of finance
in Africa has sparked considerable concern in
Europe and the United States. Some see China
primarily as a competitor unburdened by the kind
of social, environmental, and governance standards
increasingly applied to finance from the West.
In an unprecedented move, the president of the
European Investment Bank, a public funding agency,
angrily accused the Chinese of “unscrupulous”
behavior after losing contracts to Chinese banks.
The International Monetary Fund (IMF) and the
World Bank have likewise watched Chinese banks
stepping in to compete directly with their own
offers of finance. Members of the Organization for
Economic Cooperation and Development (OECD)
see Chinese companies gaining business under tied-aid
arrangements that have been negotiated away
for OECD members. The lack of transparency about
Chinese loans has deepened concerns that Chinese
banks are “free-riding” by extending loans to low
income countries newly freed of crippling debt.
The rise of China as a development actor in Africa
has become an issue on both sides of the Atlantic.
China’s three summit meetings with African leaders
(2000 in Beijing, 2003 in Ethiopia, and 2006 in
Beijing) sparked the European Union to organize
an EU–Africa summit in December 2007, its first in
more than seven years. Universities and institutes in
Europe and the United States have convened dozens
of transatlantic conferences on China and Africa.
Aid is one of the issues on the table at these
meetings. In 2005, under the Paris Declaration, the
major donor organizations committed to reform
their own approaches to aid, in an effort to increase
its effectiveness. As a newly significant source
of finance for Africa, China’s role is particularly
important for the development agenda of the
4 The German Marshall Fund of the United States
7. Competing Views About Chinese Aid 2
China’s African Aid: Transatlantic Challenges 5
Several competing narratives are prominent in
discussions of Chinese aid. In the Western media,
China appears as a new donor in Africa, rocketing
to a position of prominence, without morals and
mainly engaged with rogue regimes and resource-rich
countries. The Chinese aid program is
portrayed as enormous. For example, in June 2006,
an article carried by the Associated Press newswire
mistakenly quoted the Chinese premier as saying
that China had given Africa “more than $44 billion
in aid,” since beginning its aid program (what
he actually said was RMB 44 billion, or around
$5.7 billion). A journalist at the Christian Science
Monitor claimed that China’s aid to Africa in 2006
was “three times the total development aid given by
rich countries,” (rich countries gave about US$30
billion in 2006; China gave, at most, only a fraction
of that). Reports on Chinese aid often state that
China gives aid as a “quid pro quo” in exchange for
access to natural resources like oil. Resource-rich
“rogue regimes”—Sudan, Zimbabwe, and Angola—
feature as notorious examples of countries enjoying
large amounts of “no strings attached” aid from
China. Critics point to risks that the ratcheting up
of loans will pile new and unsustainable debt onto
low-income countries whose debts were recently
cancelled by the rich countries. Many assume that
the Chinese do not demand proper accounting
of funds and worry that the lack of conditions on
governance will worsen corruption in a region
already plagued by official malfeasance.
A second narrative on aid appears in China’s
state-controlled media. There, officials point to the
long history of China’s engagement with Africa,
and claim that their relations in the 21st century
will reflect “a new type of strategic partnership…
featuring political equality and mutual trust,
economic win-win cooperation.”1 Discussions of
1 “Declaration of the Beijing Summit of the Forum on China–
Africa Cooperation,” November 16, 2006 (draft) http://www.
focac.org/eng/wjjh/t404126.htm.
aid frequently refer to China’s commitment to build
the massive Tanzania–Zambia railway during the
1970s, a project turned down by the West. Chinese
leaders emphasize that they have rescheduled and
cancelled a large portion of debt owed by Africa’s
low income countries without imposing the kinds
of preconditions required by the rich countries. For
decades, stories in the Chinese press have profiled
the “selfless” teams of Chinese doctors delivering
healthcare in remote African towns, agricultural
experts teaching Chinese rice techniques to African
farmers, and frequent donations of food, anti-malaria
drugs, and humanitarian relief bilaterally
and through the United Nations.
A third narrative is heard in the corridors of power
in Africa, where almost without exception, African
governments have welcomed China’s new visibility
as a source of finance. They admire China’s own
record of development success, and appreciate
the Chinese emphasis on non-interference and
explicit lack of political conditions. China’s focus on
economic development (including the development
of natural resources) mirrors the agenda voiced by
many African leaders, and the particular attention
to infrastructure—electric power, ports, irrigation,
roads—is welcomed in a region where finance for
infrastructure had been low for many decades.
Leaders appreciate the Chinese insistence on their
engagement as a partnership, not a form of charity.
Fourth, African societies reflect a more mixed
response. Some appreciate the leverage offered by
the Chinese option, and appreciate the absence
of economic conditionality, a prominent feature
in assistance from much of the West. Others
focus more on a litany of problems associated
with China’s economic embrace of Africa: the
competition presented by Chinese goods, the
large number of Chinese workers who typically
accompany Chinese projects, and a sharp increase
in small-scale Chinese traders competing with
Africans in many urban markets. Unions have
8. protested the low wages and third world safety and
environmental standards used by China’s state-sponsored
and private companies. African critics
do not see aid as an adequate compensation for
these problems.
6 The German Marshall Fund of the United States
9. China’s Aid: Continuity and Change 3
China’s African Aid: Transatlantic Challenges 7
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Throughout 2007 and 2008, Chinese teams
fanned out across Africa to put Hu Jintao’s Beijing
Declaration into action. Although much of the
Western world began to notice Chinese aid only
at this point, these Chinese teams were following
in the footsteps of hundreds of Chinese aid teams
over the past five decades. The overall principles
governing Chinese aid reflect continuity in the
principles of foreign policy more generally, while
the content and specific elements of China’s aid and
engagement with Africa are best understood in the
context of changes in China’s own domestic politics.
A. Domestic and Foreign Policy Context
Like other countries, China gives aid for a variety of
reasons: as a political tool of foreign policy and in
support of its own economic interests; as a response
to domestic stakeholders, and as a reflection of
higher values and principles. As a tool of foreign
policy, aid is critical in support of the “one-China”
policy. Aid also acts to smooth the way for other
economic transactions (exports, investment,
construction contracts) and it reflects China’s vision
of itself as a responsible, significant power, quick to
deliver humanitarian assistance.
The bedrock of Chinese foreign policy is reflected
in the “Five Principles of Peaceful Coexistence”
introduced by Chinese Premier Zhou Enlai in 1954:
1. Mutual respect for sovereignty and territorial
integrity
2. Mutual non-aggression
3. Non-interference in each other’s internal
affairs
4. Equality and mutual benefit
5. Peaceful coexistence
More than 50 years later, Chinese leaders still point
to these principles as fundamental influences on
their strategy of aid and economic engagement. An
overriding concern with the “one-China” policy
is reflected in the principle of “non-interference
in each other’s internal affairs” (recognition of
the rebellious province of Taiwan as “China”
is seen as interference in an internal dispute).
These long-standing principles also help explain
the Chinese resistance to calls by the West that
they impose political conditions on their aid.
“Equality and mutual benefit” are reflected today
in Chinese leaders’ frequent emphasis on aid as a
partnership, not a one-way transfer of charity. The
five principles have always been a feature of China’s
engagement with Africa, shaping the way Chinese
officials position themselves vis-à-vis the West.
Domestic political and policy shifts have also
shaped China’s aid. During the first three decades of
the People’s Republic (1949–79), China’s domestic
policy shifted between an ideological emphasis
on class struggle and a more pragmatic emphasis
on constructing an economically strong, modern
nation. By 1979, the pragmatic forces in the
person of Deng Xiaoping had won the leadership,
and China embarked on a policy of shifting the
economy gradually toward the market, while trying
to contain the pressures inherent in openness to
foreign investment and trade and global markets,
and maintaining the Chinese Communist Party at
the helm of government.
Much of the 1980s were focused on building up
China’s domestic economy and attracting foreign
investment. In the early and mid-1990s, however,
a further set of reforms were put in motion that
aimed to deepen restructuring of state-owned
enterprises, promote the competitiveness of China’s
most important firms (private and state-owned),
and ready the economy to join the World Trade
Organization in December 2001. State-owned
enterprises were separated from the control of
their parent ministries and allowed to manage
themselves and be responsible for their own
profits and losses. In the tenth Five Year Plan
(2001–2005), these reforms were deepened through
10. the strategy of “Going Global.” One feature of the
strategy was an increase in regional cooperation.
The Forum on China–Africa Cooperation is one
product of this strategy, but it is not alone. China
also established the China–Caribbean Economic
and Trade Cooperation Forum (2003), the Forum
for Economic and Trade Cooperation between
China and Portuguese-speaking Countries (2003),
the Forum on Cooperation between China and
Arab States (2004), and the China–Pacific Islands
Economic Development Forum (2006).
Each of these has similar features, usually including
promises of aid, tariff-free entry to China for
many categories of goods, cancellation of debts,
training in China for officials from the region,
and so on. Seen from this perspective, China’s
strategy in Africa is clearly part of a broader
strategy of engagement with regional groups and
the developing world more generally. For example,
the promises made at the Beijing Summit of the
Forum on China–Africa Cooperation were an
echo of a pledge made in September 2005 by
Chinese President Hu Jintao at a September 2005
United Nations plenary session on financing the
Millennium Development Goals (Box 2).
B. China’s Changing Aid Strategy in Africa
1. The Maoist Period 1960–76
Although China supported some of the
independence movements, Chinese official aid to
sub-Saharan Africa began with a zero-interest loan
extended to Guinea in 1960. Chinese Premier Zhou
Enlai traveled to Africa in 1964 and announced eight
principles that still govern the way China’s aid is
designed and delivered (Box 3). By 1965, China had
aid programs in Central African Republic, Congo-
Brazzaville, Ghana, Kenya, Somalia, Tanzania, and
Uganda. Although China’s earliest aid recipients
were governed by leaders who declared themselves
socialists, such as Sekou Toure in Guinea and
Julius Nyerere in Tanzania, ideological affinity
8 The German Marshall Fund of the United States
Box 2: Chinese President Hu Jintao’s
Five Measures For Assisting Other
Developing Countries*
1. Zero tariff treatment to some products from all the 39
LDCs having diplomatic relations with China, which
covers most of the China-bound exports from these
countries.
2. Further expand aid program to the Heavily Indebted
Poor Countries (HIPCs) and LDCs and, working
through bilateral channels, write off or forgive in other
ways, within the next two years, all the overdue parts
as of the end of 2004 of the interest-free and low-interest
governmental loans owed by all the HIPCs
having diplomatic relations with China.
3. Within the next three years, China will provide US$10
billion in concessional loans and preferential export
buyer’s credit to developing countries to improve their
infrastructure and promote cooperation between
enterprises on both sides.
4. China will, in the next three years, increase its as-sistance
to developing countries, African countries in
particular, providing them with anti-malaria drugs and
other medicines, helping them set up and improve
medical facilities and training medical staff.
5. China will train 30,000 personnel of various profes-sions
from the developing countries within the next
three years so as to help them speed up their human
resources development.
United Nations, New York, September 14, 2005
* Hu Jintao, “Promote Universal Development to Achieve Com-mon
Prosperity,” written statement by Chinese President Hu
Jintao at the High-Level Meeting on Financing for Development
at the 60th Session of the United Nations, New York, Septem-ber
14, 2005.
was less important than a country’s decision to
recognize Beijing as “China” instead of Taipei.
The establishment of diplomatic ties was normally
accompanied by an offer of assistance: usually, a
zero-interest credit, made available for a specific
number of years, and which could be drawn on to
finance projects agreed on by both governments.
11. By 1971, Beijing had won diplomatic recognition
from 16 African countries, enough to ensure it
could regain its seat at the United Nations. As
countries switched recognition away from Taipei,
they were rewarded with aid programs. Many heard
about the famous Tazara railway linking Zambia’s
copper mines through Tanzania to the coast,
enabling Zambia to avoid shipping its minerals
through apartheid South Africa and the white-run
regime in what was then Rhodesia. Built toward
the end of the Cultural Revolution, a particularly
harsh period of political mobilization in China, the
Tazara Railway represents the signal achievement of
China’s African aid. But countries receiving Chinese
aid in the 1970s also received Chinese medical
teams, dozens of rice and agriculture projects, and
state-owned factories for processing raw materials.
By 1975, China had aid programs in more African
countries than did the United States.
Parallel to the expansion of Chinese aid in Africa,
Japanese economic ties with China were also
growing. In 1973, Japan began to import oil from
China, and by 1977, petroleum products and crude
oil made up more than 42 percent of Japanese
imports from China.2 As China opened up further
to the outside world, Chinese officials drew on
their experience in this first important bilateral
relationship. It shaped Chinese perceptions of
how relations between two countries at different
levels of development might be beneficial to both.
As a Japanese analyst described it: “China finds it
extremely convenient to have Japan near its border
because of the availability of a wide variety of
imports from an industrialized country. For Japan,
the physical proximity and vast natural resources
2 Tomozo Morino, “China–Japan Trade and Investment
Relations,” Proceedings of the Academy of Political Science, 1991,
38, 2, p. 92.
China’s African Aid: Transatlantic Challenges 9
Box 3: Eight Principles for China’s Aid to
Foreign Countries (1964)
1. The Chinese Government always bases itself on the
principle of equality and mutual benefit in providing
aid to other countries. It never regards such aid as a
kind of unilateral alms but as something mutual.
2. In providing aid to other countries, the Chinese
Government strictly respects the sovereignty of the
recipient countries, and never attaches any conditions
or asks for any privileges.
3. China provides economic aid in the form of interest-free
or low-interest loans and extends the time limit
for repayment when necessary so as to lighten the
burden of the recipient countries as far as possible.
4. In providing aid to other countries, the purpose of
the Chinese Government is not to make the recipient
countries dependent on China but to help them
embark step by step on the road of self-reliance and
independent economic development.
5. The Chinese Government tries its best to help the
recipient countries build projects which require less
investment while yielding quicker results, so that the
recipient governments may increase their income and
accumulate capital.
6. The Chinese Government provides the best-quality
equipment and material of its own manufacture at
international market prices. If the equipment and ma-terial
provided by the Chinese Government are not up
to the agreed specifications and quality, the Chinese
Government undertakes to replace them.
7. In providing any technical assistance, the Chinese
Government will see to it that the personnel of the
recipient country fully master such technique.
8. The experts dispatched by China to help in construc-tion
in the recipient countries will have the same
standard of living as the experts of the recipient
country. The Chinese experts are not allowed to make
any special demands or enjoy any special amenities.
Source: Speech by Chinese premier Zhou Enlai, Accra, Ghana,
January 15, 1964.
12. make China an ideal trading partner.”3 The early
pattern of this relationship would later be repeated
in China’s engagement in Africa.
2. The Reform Era 1977–
89
As China began to open up economically under the
post-Mao reform leaders, the country began the long
but gradual process of establishing a market economy.
Aid fit into these plans.4 Under the planned economy,
most ministries, provinces, and large municipalities
had aid offices responsible for carrying out aid
activities assigned by the central government. In the
economic reforms of the early 1980s, these aid offices
were transformed into state-owned corporations. As
Beijing decentralized many decisions to the province
and municipal level, governments at these levels were
encouraged to conduct their own business forays
abroad, using their new corporations to seek revenues
through consulting, design, contracting, and joint
ventures. In Africa today, the proliferation of Chinese
companies is partly due to the earlier roles many
of them played in carrying out aid projects for the
Chinese government.
From 1979–81, few new foreign aid loans were
announced, although Chinese construction
companies already present in Africa were allowed,
for the first time, to bid on small infrastructure
projects. Yet after the Chinese reformers worked
out how foreign aid would fit into their new
domestic and foreign goals, they moved again to
engage with Africa. Chinese premier Zhao Ziyang
traveled to Africa in December 1982 to promote
“south-south cooperation,” and to announce that
China was adding a new principle to its foreign
aid: “diversity in form.” The new principle marked
a significant reform and its impact is still being felt
3 Ibid, p. 89.
4 This section draws on Deborah Brautigam, Chinese Aid and
African Development: Exporting Green Revolution (New York:
St. Martin’s Press, and Basingstoke, U.K.: Macmillan, 1998), pp.
49–53.
today. A high-ranking Chinese official commented
that over time, the reforms would switch aid
from one-way loans to cooperation “which can
benefit both partners.” This, he continued, would
be a better way to sustain and expand economic
engagement, and it would enable China’s scarce aid
resources to be better used.
Japan again provided a model for China. As China
opened up, Japan was the first partner to move to
engage China. Between 1979–84, Japan provided
330 billion yen ($1.4 billion) in official development
assistance to China.5 But aid was dwarfed by
other economic ties. For example, in 1978, the
two countries signed a general “countertrade”
agreement whereby China agreed to buy $10 billion
in capital goods from Japan between 1978–85 and
pay for them by exporting the equivalent value of
oil.6 Japan also agreed to invest in China’s massive
Liuzhuang Mining area. Deng Xiaoping, the
architect of China’s reforms, proposed the same
countertrade to Western firms: “importing plant
and equipment from the West for the development
of China’s oil and coal industries, and then paying
for these imports with the resulting output from the
plants.”7 As China opened to the world, allowing
foreign investment after 1982, companies from
Europe and the United States flocked to the Middle
Kingdom to participate in the development of
China’s petroleum, coal mines, and nuclear energy.
In 1983, for example, oil companies from Britain,
Australia, Brazil, Canada, Australia, and Spain won
contracts for bids to develop China’s offshore oil;
Thyssen Company of Germany, and U.S. companies
Bechtel and Fluor, signed on to open up coal mines;
5 Jong H. Park, “Impact of China’s Open-Door Policy on Pacific
Rim Trade and Investment,” Business Economics, October 1993,
28, 4, p. 54. Yen converted to dollars at January 1984 exchange
rate of 234 yen to US$1.0.
6 Morino, p. 90. By 1988, the Exim Bank of Japan had ap-proved
10 The German Marshall Fund of the United States
more than $9 billion in loans to support Japan’s exports
to China.
7 Park, p. 53.
13. China’s African Aid: Transatlantic Challenges 11
and France and the U.K. moved to cooperate with
China in the area of nuclear power. This early
investment set the stage for ample energy capacity,
lifting a significant constraint for China’s economic
development.
After working out new policies to reconcile aid
with the country’s new commitment to its own
economic development, leaders recommitted to
the aid program. In 1984, China’s announced aid
commitments to Africa surpassed those from
Japan, Norway, Sweden, and the United Kingdom.
Although it is assumed by many that China has
only recently “returned” to Africa, Table 1 (which
marks the years in which Chinese and African
media announced economic cooperation and aid
agreements in particular countries) shows that in
fact China was quite active throughout the 1980s.
This activity increased further in the 1990s with
another shift in policy.
3. Economic Cooperation for Mutual Benefit
1990–present
By 1990, a number of factors affected foreign aid
policy and internal debates about the role of aid
and refocused Chinese attention on its relationship
with Africa. First, flush with foreign reserves and
encouraged by the worldwide opprobrium following
China’s violent suppression of demonstrations in
Tiananmen Square in 1989, a newly democratic
Taiwan began to reinvigorate its “checkbook”
diplomacy efforts to win recognition (Box 4).8 By
the end of 1990, seven countries had re-established
relations with Taiwan (Belize, Guinea-Bissau,
Nicaragua, Bahamas, Grenada, Liberia, and Lesotho)
and China responded by suspending diplomatic ties.
Over the next decade and a half, a number of African
countries made the switch back to Taipei (Liberia
and the Central African Republic switched between
Beijing and Taipei twice). The rivalry with Taiwan
sparked something of a bidding war, with escalating
offers of aid on both sides.
8 Ian Taylor, “China’s Foreign Policy Towards Africa in the
1990s,” Journal of Modern African Studies, 36, 3 (1998): 443–60.
Chinese leaders were also concerned about a
problem they shared with many donors: the
deterioration of their aid projects once they were
handed over to the host government. Not only
was the collapse of productive projects a waste of
China’s scarce resources, Chinese officials worried
that it could have political ramifications, since
the projects were intended to promote “friendly
ties.” A third issue arose to affect thinking about
government subsidies for exports and tied aid:
China’s bid to join the World Trade Organization.
Finally, by the early 1990s, planners were well aware
that resource scarcities, particularly in domestic
energy, would soon become an issue for domestic
production, and they moved to position the
country to overcome that challenge.
In 1994, to address some of these issues, the
Chinese government separated the state-owned
banks into those that would operate on commercial
principles, and those that would carry out the
government’s policies. The three “policy banks”
(China Development Bank, China Export Import
Bank, and China Agriculture Bank) remained tools
of the government, enabling the state to intervene
in areas where the market is less interested, and to
allow targeted development of agriculture, industry,
and infrastructure in China and overseas. The
banks were set up to conform to WTO rules on
trade institutions.
As the Chinese government moved to boost its ability
to support Chinese companies’ efforts to win contracts
and establish ventures abroad, and to recognize the
growing debt crisis in the least developed countries,
three new instruments were added to the existing
basket of assistance tools, in 1995:
concessional lo • ans with interest subsidized by
the Chinese government
• government-supported joint ventures and equity
stakes in productive projects
• grants, primarily for countries with economic
difficulties or crises
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In 1996, as Premiers Zhou Enlai and Zhao Ziyang
had done in earlier decades, President Jiang Zemin
visited six African countries and reinforced the
new aid policy as part of a five-point proposal
aimed at a “21st century” relationship. Premier Li
Peng followed with a 1997 trip to an additional six
African countries. Both emphasized that, as Li Peng
told Xinhua news agency, “China’s basic policy of
providing aid to Africa has not changed [but] …
China’s policy has moved from aid donation to
economic cooperation for mutual benefit.”
The framework for China’s aid in 2008 still closely
reflects these policy shifts. Aid is one component of
economic engagement, but it is often confused with
other subsidized forms of economic engagement
common to many dirigiste regimes: these subsidies
are not considered aid by the Chinese, and
indeed would not qualify as “official development
assistance” under OECD guidelines.
Box 4: “Dollar Diplomacy:” The Beijing-Taipei Rivalry in Africa, 1989 to present
Countries that Broke with Beijing to Establish Ties
with Taipei
Countries that Broke with Taipei to Establish ties
with Beijing
1989–Liberia (second)* 1993–Liberia (second)
1990–Guinea-Bissau 1994–Lesotho (second)
1990–Lesotho (second)* 1996–Niger (second)
1991–Central African Republic (third)* 1998–Central African Republic (third)
1992–Niger (second) 1998–Guinea-Bissau
1994–Burkina Faso 1998–South Africa
1996–The Gambia 2003–Liberia (third)
1996–Senegal (second) 2005–Senegal (second)
1997–Chad (second) 2006–Chad (second)
1997–Liberia (third) 2008–Malawi
1997–Sao Tome and Principe Swaziland is the only African country that has never
established diplomatic relations with Beijing.
* These countries had previously had relations with Taipei, and broken them to establish relations with Beijing.
Source: Author’s research and Chung-lian Jiang, “Beijing and Taipei, the African Challenges,” http://www.african-geopolitics.org/show.
aspx?articleid=3584 [n.d.]
12 The German Marshall Fund of the United States
15. 1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Sudan* M M v M v v v v v M v v M v v v v v v v v
Guinea M v M v v M v v M M v v v v v v v v v v v v v M v v v v
Ghana M v v v M v v v v v v v v v v v v v v v
Mali M v M v v M M v v v v v v v v v v v v v M v v v v v v v
Somalia M v M v v M M M v v M v v
Tanzania M v M M v v v v v M M v v M M v v M v M M v v v v v v
Uganda M v M v M M v M v v v v v v
Kenya M M M v v M v v M v v v v v v
Benin M v v v v v v v M M v v v M v
Burundi v M v v v v v M v v v
C.Afr. Rep. v M v v v M v v v M v v v
Congo-B M M M v M M v M v v M v v v v v v
Zambia M v M v v v v v v M v M v v M v v v v v v
Mauritania M v M v M M M v v v v v v M M v v v v
E. Guinea M M v M v v v v M v v v
Ethiopia M M v v v M M v M v M v v v v v v v v v
Cameroon M v v v v M v v v v M v v v v M v v M M
Nigeria M M v M v v
Rwanda M M M v v v M v v v
Senegal M v v v M M v v v v v v v v
Sierra Leone M v v M M v v v M v v v v v v
Chad M M v v v M M
D. R Congo M v v v v v M M v v
Madagascar v v M M v v v M v v v M v v v v v v v v
Mauritius M v M v M v v v v v v v v v v M
Togo M M v v v v v v v v v v v v v v v v
Burkina Faso M v M M v M v M v M
Gabon M M M v v v v v M v v v v v v
Gambia M v v v v v
G.Bissau M v v v v v v v v v
Niger v M v M v v M v v v v v
Botswana M v v v v M M v M v v v v v v M v
Comoros M v M M M v v v v
Mozambique M M v M v v M M M v v v v v v
S.Tome/Pricp. M v v v v
Cape Verde M v v v v v v v v v v
Seychelles v M M v M M v v v v v v
Liberia M M v v v v v v v v
Djibouti M v M M M v v M M v M M v
Zimbabwe M M M M M v M v v v v v v v v
Lesotho M v M v v v v v v v
Angola M v v v v v v v v v v
Cote d’Ivoire v v v v M v v v v
Namibia M M v M v v v v v
Eritrea v v v v v v
South Africa v v v v
M Economic and Technical Cooperation Agreements v Loan agreements
Notes: Data is from open sources and may be incomplete. Shaded area represents years country had diplomatic ties with Beijing.
*recognized in 1959.
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Table 1: Years of New Chinese Aid Commitments in Africa (1961-2007)
China’s African Aid: Transatlantic Challenges 13
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The Chinese Aid System 4
The Chinese aid system operates at three levels: in
Beijing, in the provinces and municipalities, and in
the field. The cabinet of the Chinese government—
the State Council, headed by the Chinese premier
and vice-premiers—acts as the main decision-maker
on aid, but the details are handled by a
number of different agencies. Economic assistance
decisions are part of China’s foreign policy, and
the Ministry of Foreign Affairs appears to be
the primary initiating agency for traditional aid
agreements. In keeping with the Asian tradition
of gifts, the Chinese prefer to announce a decision
about particular aid projects or an overall aid
agreement during visits of Chinese officials to
Africa (or African officials to China).
A. Major Institutions of Aid and Economic
Cooperation
Anywhere between 15 and 23 central ministries and
agencies have some kind of role in China’s foreign
aid. This is similar to the United States, where
foreign aid is provided by 26 different government
departments, agencies, and offices; and France
which has a complex array of aid related offices.9
However, the four main actors orchestrating China’s
aid and economic engagement in Africa are the
Ministry of Commerce (MOFCOM), Ministry
of Foreign Affairs (MOFA), and two of the three
policy banks: China Export Import Bank (China
Eximbank) and the China Development Bank.
1. Ministry of Commerce
The Ministry of Commerce (MOFCOM) is
China’s central ministry concerned with aid.
MOFCOM is responsible for disbursing grants
and zero-interest loans, and coordinates with
China’s Eximbank on concessional loans. Within
MOFCOM, aid is the responsibility of two units:
9 On the large number of agencies involved in French aid, see
Carol Lancaster, Foreign Aid: Diplomacy, Development, Domestic
Politics Chicago: University of Chicago Press, 2007, pp. 148-150.
the Department of Aid to Foreign Countries, and
the Bureau of International Economic Cooperation.
The Department of Aid makes the annual plans
and budgets for aid disbursements, and drafts the
regulations that (as in other ministries) increasingly
substitute for the earlier system of state planning.
The Bureau oversees the practical steps (bidding,
procurement, monitoring, evaluation, and training)
in the implementation of aid and economic
cooperation (non-aid) projects.
2. Ministry of Foreign Affairs
Much like the U.S. State Department, China’s
Ministry of Foreign Affairs oversees aid decisions
as they relate to overall foreign policy objectives.
Traditionally, the Ministry’s desk officers in the
Department of African Affairs and diplomats
on the ground have been the “front line” for
advising Beijing on the quantity of foreign aid
for a particular African country. In Beijing, they
work closely with the Ministry of Commerce and
the China Eximbank in making these decisions,
following guidelines issued by the Ministry of
Foreign Affairs Department of Policy Planning,
which has the responsibility of monitoring the
general policy trends on economic cooperation and
foreign aid.
3. China Eximbank
China Eximbank was set up in 1994, primarily
to finance and implement the trade and overseas
investment policies of the Chinese government.
Its main business is to offer export sellers’ credits
to Chinese companies (Table 2). Since 1995, the
Eximbank has also operated China’s concessional
loan program, a major arm of China’s foreign aid.
The concessional loan program generally raises
funds for its loans on domestic and foreign capital
markets, much as the World Bank does for its
IBRD loans. The interest rate on the foreign aid
concessional loans is officially subsidized by the
government through the foreign assistance budget.
14 The German Marshall Fund of the United States
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China’s African Aid: Transatlantic Challenges 15
Concessional loans are used to finance official aid
projects, and are now probably the largest window
for China’s aid. According to its 2005 Annual Report,
China Eximbank’s concessional loan program grew
at about 35 percent a year after 2001, and there is
no reason to suppose this pace has slackened. Loans
from China Eximbank pay for Chinese equipment
and Chinese construction services, although they
have also been used to jump start joint ventures
between Chinese and African state-owned firms.
Concessional loans are a very small part of China
Eximbank’s portfolio, representing only 3 percent
of its assets as of December 2005 (about $1.16
billion).10 However, the Eximbank also has a number
of other financing vehicles that can issue credit at
“preferential rates” creating considerable confusion
over just what is “aid” and what is not. This is
discussed further below.
4. China Development Bank
China Development Bank (CDB) was set up,
like the Eximbank, to implement policies of the
10 Standard and Poor’s, Bank Credit Report: Export–Import
Bank of China, August 2006, p. 5 (calculations by author).
Chinese government, but it is far larger. The total
assets of the CDB reached nearly $300 billion at the
end of 2006. Very few of its loans go overseas—two
percent in 2005, and three percent in 2006.11 It
primarily provides loans to other levels of the
Chinese government (provincial departments of
transportation, for example, or parastatals such as
China Three Gorges Development Corporation)
to finance investments in domestic infrastructure,
power stations, and public facilities. As of the end of
March 2007, CDB had financed only 30 projects in
Africa, worth about $3 billion (CDB’s share of the
finance was some $1 billion).12 China Development
Bank does not offer concessional financing, although
it has sometimes joined with China Eximbank to
finance projects. Like Eximbank, it has also given
Chinese companies lines of credit to assist their
efforts to “go global,” reports directly to the State
Council, and raises a large share of its funding
through the issue of bonds overseas and in China.
B. Instruments of Chinese Aid
Chinese aid is generally given through projects, but
can also be given as cash for direct budget support
(this is uncommon and the sums are usually relatively
small). Aid can also finance vehicles (such as patrol
boats provided to Sierra Leone and to Mauritius),
equipment, and material goods. Humanitarian aid is
generally given in kind, and China also has programs
for training, scholarships, teams of doctors, debt relief,
and a new volunteer program.
1. Complete Plant and Technical Assistance Projects
The two main instruments of aid are complete plant
projects (turn-key projects that involve construction
or repair of buildings, infrastructure or facilities of
11 China Development Bank, Annual Reports 2005 and 2006.
12 “The trade between China and Africa contributes 20% to
African economic growth.” [Zhong Fei Maoyi Dui Fei Jingji
Zengzhang Gongxianli da 20%]. Jinshi wang, Jinrong Shibao, May
14, 2007.
Table 2. China Eximbank Financing
Approved, 2006
(US$ billion)
Export seller’s credit $17.5
Export buyer’s credit $ 4.2
Import credit $ 2.4
Letters of guarantee $ 4.4
Concessional aid loans n/a
Total (w/o aid loans) $28.5
Source: China Eximbank Annual Report, 2006. RMB converted
to US$ at an exchange rate of RMB 7.8 to $1 (by author). Not
all approved loans will actually be disbursed.
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some kind) and technical cooperation projects that
involve training and assistance. In agriculture, for
example, the construction of an irrigated rice station
would be a complete plant project, while the sending
of eight Chinese experts to demonstrate rice-growing
would be a technical assistance project. In 2005,
China assisted 26 complete plant projects and 36
technological cooperation projects in Africa (usually
financed by grants or zero-interest loans), and nine
projects financed by concessional loans.
2. Medical Teams
More than 65 developing countries and territories
have hosted Chinese medical teams since 1963, and
some 20,000 medical personnel have served abroad
under the rotating medical team program. In 2007,
48 Chinese medical teams each with an average of
25 doctors and nurses (sometimes spread among
more than one hospital or medical center) were
working in 47 countries worldwide.13
3. Training and Scholarships
Since 2000, the Chinese government has
accelerated the training component of its foreign
aid, focusing in part on transferring information
about China’s own experience with urbanization,
economic growth, and poverty alleviation. By 2007,
China had held 2,500 short and medium term
training courses in 20 different fields (management,
economics, agriculture, health, justice, education,
etc.) with more than 80,000 people participating.14
As noted above, this was expected to increase
rapidly with the twin pledges made by Chinese
president Hu Jintao at the 2005 UN Summit in New
York (30,000 developing country personnel trained
over three years) and the 2006 FOCAC Summit in
13 “Debts of 49 developing countries waived,” China Daily,
February 12, 2008.
14 Ministry of Commerce, “National Foreign Aid Training
Conference held in Beijing,” http://boxilai2.mofcom.gov.cn [ac-cessed
July 30, 2007.]
Beijing (15,000 African professionals trained by the
end of 2009). Scholarships for university study in
China have also been an important component of
China’s assistance. At the Beijing Summit, China
pledged to double scholarships for African students
from 2,000 to 4,000 per year.
4. Overseas Youth Volunteer Program
In 2002, the Central Committee of the Chinese
Communist Youth League China initiated a youth
volunteer program overseas. In 2005, the Ministry
of Commerce took over coordination of the
program, and that year Ethiopia became the first
continental African country to receive a group of
Chinese volunteers.15 The Chinese pledged to send
300 youth volunteers to Africa over the period
2006–09. By October 2007, ten African countries
were hosting youth volunteers.
5. Debt Cancellation
China’s debt relief resembles debt relief from
the OECD countries in that it is targeted to low
income and least developed countries. Mauritius,
for example, with an excellent record of repaying
its debts received no debt relief, while highly
indebted Zambia reportedly received $211 million.
However, Chinese debt relief differs in the ease of
implementation and the absence of conditionality.
Between 2000–03, China cancelled approximately
$1.4 billion in overdue debt from 31 African
countries. Between 2006–09, another round of
debt cancellations was scheduled to write off an
additional $1.3 billion from. These cancelled debts
amount to 60 percent of the total owed to China.16
15 Li Baoping, “On the Issues Concerned with China–Africa
Educational Cooperation,” paper delivered at conference on
China and Africa, Hong Kong University of Science and Tech-nology,
16 The German Marshall Fund of the United States
2007, p. 8.
16 Qi Guoqiang, “China’s Foreign Aid: Policies, Structure,
Practice and Trend,” paper delivered to Conference on New Di-rections
in Foreign Aid, Center for Global Governance, Oxford
University, June 2007.
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China’s African Aid: Transatlantic Challenges 17
C. Other Instruments of Economic
Engagement
Although they do not qualify as “aid” either for
the Chinese or for traditional donors, three new
instruments of economic engagement hold some
potential for meeting African concerns with
building manufacturing and infrastructure. They
help explain the strategy voiced by an official of the
Zambian Development Agency: “We are trying as
much as possible to focus on China because they
are ready. Where there are opportunities they will
take them. We need to move the country up the
value chain.”
1. China Africa Development Fund
Announced at the November 2006 Beijing Summit,
this $5 billion equity fund will be open to Chinese
companies and their joint venture partners
for investment in agriculture, manufacturing,
industrial parks, mining, and infrastructure (power,
telecommunications, water, transportation).
Managed by the China Development Bank, the
fund will have a lifespan of 50 years and make
equity investments between $5 and $50 million
in each project. The focus on joint ventures
provides an opportunity for African governments
and entrepreneurs to collaborate with Chinese
entrepreneurs on manufacturing and other
productive ventures.
A number of OECD countries have established
similar funds that seek to promote investment
in Africa (and elsewhere). The Norwegian
Development Fund, for example, has assets of
$543 million available for Africa. The CDC
(British Development Fund) has $1.96 billion,
but it does not invest directly in companies. Over
its 35 year history, the U.S. Overseas Private
Investment Corporation had extended only about
$2.53 billion in loans and guarantees for African
projects.17 Recently French President Nicolas
Sarkozy announced that his development agency,
17 Personal communication, Alison Germak, OPIC, March 14
and 17, 2008.
Groupe Agence Française de Developpement
(AFD), would establish a fund of €250 million
as investment capital for Africa (the fund will
purchase shares in other Africa investment funds,
but will not offer equity directly to companies).18
China’s fund is obviously far larger than all of these
other initiatives. On the other hand, the fund has
been criticized because the capital is restricted to
Chinese companies (and their African joint venture
partners). African entrepreneurs without access
to Chinese partners may see the fund as another
unfair advantage enjoyed by China’s foreign
investors.
2. Special Trade and Economic Cooperation Zones
China’s current prosperity can be traced in part to
Shenzhen and the other three special economic
zones opened along the coastal regions in the
1980s. Drawing on this model, the Chinese
government decided in the eleventh Five-Year Plan
(2006–11) to establish at least ten industrial zones
abroad as part of the “Going Global” strategy. These
zones are unlike the ill-fated export processing
zones established by many African governments
in the past. Instead, major Chinese companies
will bid for the opportunity to win state support
as they take the risks in proposing, establishing,
and promoting the zones to their compatriots,
while hoping to profit from selling services to
investors located in the zones. The plan is to create
a supportive environment for small and medium
Chinese companies to venture overseas, particularly
those that are no longer competitive in China but
might be competitive by moving closer to their
markets. Local firms and other foreign companies
will also be able to invest in the zones. The first
18 Sarkozy also promised to provide €250 million in loan guaran-tees
for small and medium-sized African companies, and AFD
pledged to double its support for private sector development,
spending €2 billion over five years. “France: Sarkozy: Speech
to Parliament of South Africa (28/02/2008),” February 8, 2008,
http://www.polity.org.za/article.php?a_id=128322
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three African zones were approved in Zambia,
Mauritius, and Nigeria.19
There are risks in this strategy. Chinese companies
facing increasingly strict environmental and labor
regulations in China will likely expect to find a
more relaxed regulatory environment overseas.
Mauritians have expressed concern at their
government’s agreement to allow large numbers
of temporary Chinese workers to be employed
in the zone, as they are, in fact, currently outside
the zone. Companies in the zones will largely be
producing for export into the region, and this will
continue to provide stiff competition for Africa’s
own manufacturers.
The Chinese have been sensitive to some of
these concerns. In Zambia, for example, Chinese
promoters promised to do an environmental
appraisal, meet the ISO 14000 environmental
standards, and hire local labor. Yet, as the World
Bank has pointed out, manufacturing has been
the chief sector of interest for Chinese investors in
Africa, and this is a sector that has been of relatively
little interest for the West.20 Given the lower
levels of technology used by Chinese firms, there
19 This initiative is very different from other partner country
strategies to assist African countries to expand manufac-tured
exports. For example, the U.S. Agency for International
Development will spend $200 million on technical assistance
and assorted projects over five years to build African trade
competitiveness. Four countries were chosen as “competitive-ness
hubs” (Ghana, Senegal, Botswana and Kenya), but these
hubs are intended only to “provide information and technical
assistance to African organizations, U.S. Government agencies,
donor and civil society organizations, and the private sector on
trade, investment, and business activities in the region, including
training opportunities.” United States Agency for International
Development, “Africa Global Competitiveness Initiative,” http://
www.usaid.gov/locations/sub-saharan_africa/initiatives/agci.
html. The USAID “competitiveness hubs” are somewhat similar
to ten centers China established in the mid-1990s to promote
two-way trade and business in ten African countries: Egypt,
Guinea, Mali, Côte d’Ivoire, Cameroon, Gabon, Mozambique,
Nigeria, Tanzania and Zambia.
20 Broadman, p. 99. The World Bank conducted a mid-2005 sur-vey
of Chinese investors in eight Chinese cities, and found that
45 percent had invested or were planning to invest in manufac-turing,
35 percent in construction and services, and 20 percent
in resources (agriculture, mining, oil and gas).
are likely to be relatively more opportunities for
technology transfer to African investors. To benefit
from these zones, African governments will need to
boost their own companies’ abilities to partner with
the Chinese, deliberately building business linkages,
building skills, promoting transfers of technology,
and ensuring that most jobs are filled locally.21 And
they will need to ensure that the promoters fulfill
their promises.
3. Tariff and Quota-Free Entry for Goods from Least
Developed Countries
At the Addis Ababa meeting of FOCAC in 2003,
Chinese leader Hu Jintao promised to give zero
tariff treatment to an unspecified number of
exports from Africa’s least developed countries.
The list of commodities and rules of origin were
negotiated during 2004, and the full list of 190
products was announced in each country in early
2005. At the Beijing Summit in November 2006,
the Chinese pledged to increase the list to 440
commodities; this went into effect in July of 2007.
The West has two similar programs: (1) Europe’s
“Everything But Arms” (EBA) program allows
duty-free and quota-free entry into the European
Union for all goods from the least developed
countries except armaments; entry for bananas,
rice, and sugar was phased in more gradually; (2)
the United States’ Africa Growth and Opportunity
Act is an incentive-based program, allowing
duty free entry of most commodities, as long as
countries have met a number of economic, political,
and rule of origin conditions. China’s program is
said to cover almost all the exports from the least
developed countries, however a list of goods is not
easy to obtain and this makes it difficult to evaluate
the potential development impact. Independent
21 For more on this, see Deborah Bräutigam, “Chinese Business
and African Development: ‘Flying Geese’ or ‘Hidden Dragons’?”
in Daniel Large, J. Christopher Alden, and Ricardo M. S. Soares
de Oliveira, eds. China Returns to Africa: A Rising Power and a
Continent Embrace London: Christopher Hurst.
18 The German Marshall Fund of the United States
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China’s African Aid: Transatlantic Challenges 19
analyses of the EBA and AGOA programs have
reported generally positive effects for participating
countries, and it is likely that the Chinese program
will also, at the least, be a stimulus to trade.22
22 Lucian Cernat, Sam Laird, Luca Monge-Roffarello, and Ales-sandro
Turrini, “The EU’s Everything But Arms Initiative and
the Least-Developed Countries,” WIDER Discussion Paper No.
203/47, June 2003; Garth Frazier, Johannes van Biesebroeck,
“Trade Growth Under the U.S. Growth and Opportunity Act,”
NBER Working Paper No. 13222, July 2007. Growth under the
African Growth and Opportunity Act,” NBER Working paper
No. 13222, July 2007.
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Chinese Aid in Operation 5
A. How much aid does China give to Africa?
In 2006, the Chinese government revealed that
over the years they had disbursed RMB 44.4 billion
(US$ 5.7 billion) in aid to Africa. However, most
information about official aid is considered a state
secret. Chinese officials do know how much aid
they give: aid is still part of a government system
that allocates state resources through planning.
They simply do not collect it together and report it
as do governments who belong to the OECD/DAC.
Using Chinese methods of calculating aid, the
annual amount to Africa in 2006 was in the range of
$462 million, and this will reach close to $1 billion
in 2009. These figures are calculated from China’s
annual budget for external assistance (Table 3).
The budget figure includes grants, the face value of
zero-interest loans administered by MOFCOM, and
the interest rate subsidy given to the concessional
loans administered by China Eximbank (but not
the face value), expenses for health teams and
training programs, but not scholarships.
The sums reported in Table 3 are far smaller than
the figures frequently reported as “aid” in the press.
This is mainly because the budgeted expenditure
reflects only the interest subsidy, and not the face
value of the foreign aid concessional loans extended
by the China Eximbank. The annual subsidy
for a concessional loan of US$100 million with
an interest rate of 2 percent would be only US$
4 million, assuming a central bank lending rate of
6 percent. In contrast, among OECD countries, the
entire face value of concessional loans is considered
official development assistance (ODA).
The official aid figures are also smaller than
estimates in the press for several other reasons:
1. Package Financing. China Eximbank has a
“package financing mode” that can combine
export buyer’s credit, export seller’s credit,
Table 3: China’s Official Government
Expenditure for External Assistance 1998–2007
1998 3,720 449 198*
1999 3,920 474 208*
2000 4,588 554 244*
2001 4,711 569 250*
2002 5,003 604 266*
2003 5,223 631 278*
2004 6,069 734 323*
2005 7,470 926 407*
2006 8,200 1,050 462*
2007 10,800* 1,421* 625*
*estimates. Africa’s share is estimated at an average of 44% of
the total.
Sources: Qi (2007); Ministry of Commerce officials, Beijing,
and author’s calculations.
Exchange rates are end of period averages 1998–2006.
International Monetary Fund, International Financial Statistics
(2007). The exchange rate for 2007 is that current in July.
20 The German Marshall Fund of the United States
To Africa
RMB mil US$ mil US$ mil
and concessional loans. These mixed credits
are sometimes mistakenly reported as “aid.”
2. “Preferential” loans. Subsidies from the
Chinese government and the prevailing low
interest rates make it easy for most of the
export buyers’ credits and loans offered to
African governments and their state-owned
companies to be offered at “preferential” rates
a few percentage points below the market.
These loans are often viewed as “aid” by the
media, but they would not qualify as official
development assistance (ODA) under OECD
guidelines.
3. Multi-year versus annual. Chinese aid (and
other finance) is normally provided as a
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China’s African Aid: Transatlantic Challenges 21
line of credit that can be drawn on for at
least three years, and often longer. Aid from
the OECD countries or the World Bank is
generally reported on an annual basis.
4. Media mistakes. As noted above, reporters
who are unfamiliar with Chinese currency
conversions and with definitions of official
development assistance sometimes make
mistakes. For example, a reporter for the
Financial Times described the $5 billion China
Africa Development Fund as “aid” for Africa.
Notwithstanding these caveats, China is offering
substantial sums of finance to African governments,
whether they count as “aid” or not. We can get a
sense of this from the trend of China Eximbank’s
commitments to Africa.
Information on the concessional loan component of
Eximbank’s funding is a state secret and only rarely
are any figures released by the bank. We do know
that while concessional loans were three percent of
Eximbank’s outstanding loans overall, they made up
12 percent of Eximbank loans extended to Africa.
As of 2005, Eximbank had funded only US$800
million worth of concessional loan projects in Africa (a
cumulative total of 55 projects).23 These were generally
relatively small projects. In 2006, an Eximbank
official commented that Tunisia had received more
concessional loans than any other African country, a
total of RMB 300 million ($38 million).
Eximbank’s aid programs are therefore fairly small.
On the other hand, in 2007, China Eximbank
announced that it had authorized RMB 92.5 billion
($12.3 billion) in export credits and other loans to
Africa between 1995 and 2006, for more than 259
projects (not all of this has been disbursed). They
plan to increase this sharply, lending an average
of just over $6 billion a year over the next three
23 Harry Broadman, Africa’s Silk Road: China and India’s New
Economic Frontier Washington, D.C., 2007, 274.
years. These are large figures coming from a single
country or agency. The World Bank committed
only $4.8 billion to Africa in 2006, for example
(mainly, but not all, concessional). However,
these sums are not large in comparison with flows
of bilateral finance coming from the OECD. In
2005 alone, OECD members committed US$30.7
billion in grants to African countries, while total
public and private loan commitments from OECD
members amounted to US$11.8 billion.24
B. How Effective Is Chinese Aid?
With the Asian countries it’s fast and it’s direct …
Africa doesn’t have a lot of time.
—Senegalese President Abdoulaye Wade, 2006
The 2005 Paris Declaration on Aid Effectiveness
emphasized commitments by donors to support
developing countries’ ownership over their
development strategies, better harmonization of
a fragmented aid system (reducing the costs of
managing multiple donors), accountability for the
results of aid, and results.25 China’s approach to aid
and economic engagement is attractive to recipients
in part because it already meets many of these goals.
Eschewing conditionality, the Chinese do in fact
respect local ownership. Their standard practice
is to conclude an Economic and Technical
Cooperation Agreement that is essentially a line
of credit and then ask the African government
to suggest projects that could be funded under
the credit. The two sides go back and forth
matching costs and feasibility until a list of
projects is established (either “complete plant”
construction projects or technical assistance). For
the former, Chinese teams do feasibility studies and
24 World Bank, Global Development Finance: The Development
Potential of Surging Capital Flows (Washington, D.C., 2006).
25 OECD, “Paris Declaration on Aid Effectiveness: Ownership,
Harmonization, Alignment, Results and Mutual Accountability,”
High Level Forum, Paris, February 28–March 2, 2005.
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architectural drawings, but usually submit them
for approval to the relevant ministry in the African
country. For the latter, Chinese teams will deliver
technical assistance working beside Ministry
officials in locations worked out in negotiations
with the African government. In Sierra Leone in
late 2007, for example, several teams of Chinese
rice experts were deployed to assist in agriculture,
all in locations chosen by the Sierra Leone Ministry
of Agriculture.
This process is entirely outside of the aid
framework established by the West. The Chinese
are reluctant to participate in donor-led groups
because they generally do not see aid from the West
as having been very effective in reducing poverty
in Africa. They believe that the West has often
failed to follow through with its promises, and they
know that African governments resent the many
conditions imposed on aid. For their part, the
Chinese emphasize that they have followed through
with promises to cancel debt without demanding
any conditions. Their aid is famous for being
delivered quickly and inexpensively, with personnel
that live modestly, in contrast to the lifestyles of
aid personnel from richer countries. They do not
“poach” officials from other donor projects or
from governments with already weak capacity.
Their project cycle does not demand the numerous
meetings, workshops, and negotiations that raise
transaction costs in the traditional donor system.
They will ensure that the benefits of their projects
continue, by returning to repair, rehabilitate or
manage them. Most of the stadiums built around
Africa in the 1980s have had at least one round of
aid-financed renovation by now.
Chinese leaders have gone to a great deal of
effort to portray their engagement with Africa
as an alternative to the aid business as usual, and
themselves as a legitimate example of development
success. Developing country intellectuals have long
pointed out that the advice given by the West and
conditions imposed on aid did not always reflect
the West’s own experience as it grew wealthy.
China’s emphasis on finance and investment for
agriculture and industrial production, natural
resource development, and infrastructure does
mirror their own development experience. This
gives them credibility in their role as a partner.
This simpler recipe for development also challenges
the evolution of shared understandings in Europe
and the United States of how aid should be used.
For example, infrastructure accounted for 58 percent
of the World Bank’s portfolio 30 years ago and now
only 22 percent, despite the huge unmet needs
for roads, ports, electricity, and sanitation. Fifty-two
22 The German Marshall Fund of the United States
percent of all World Bank lending goes to
human development, law, and institutional reform,
under the assumption that these areas should
be priorities for poor countries.26 With projects
emphasizing infrastructure (government buildings,
telecommunications, roads, energy), the Chinese
are responding to needs articulated by African
governments but which have been downplayed by
donors for almost three decades.
The Chinese aid system prizes fast delivery of
turnkey projects; officials are always ready to
negotiate a plan for ongoing Chinese management
if the African government is unable to manage
a stadium or irrigated farm. On the surface, it is
easier to see results in the Chinese system: a bridge
is built, a water system installed. This contrasts
with many projects from the West (governance or
capacity building, for example) where the results
are not very visible to people. At the same time,
it is not at all clear to outsiders how well Chinese
projects work over time, particularly the more
controversial projects such as hydroelectric dams.
Some critics have accused China Eximbank of
26 http://www1.worldbank.org/devoutreach/october06/article.
asp?id=386
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China’s African Aid: Transatlantic Challenges 23
“wasting money on unsustainable projects.”27
Since evaluations (to the extent they happen) are
not public, and outside experts are almost never
brought in to assess impact, it is difficult to know
whether or not this is in fact the case.
C. Aid-for-Resources?
Is China’s aid mainly given as a quid-pro-quo for
resources? A typical concern was posed in a recent
Brookings Institution policy brief: “China’s foreign
aid may be driven more by its energy requirements
than by the social and economic development
needs of recipient countries.”28 Participants at
a May 2007 Berlin meeting organized by the
Stanley Foundation and the Aspen Atlantic Group
complained that Chinese subsidies were part of
an effort “to establish firm control over Africa’s
natural resources.”29 Although it is widely believed
that China mainly gives aid in exchange for natural
resources, this is not actually the case. However, the
confusion between official development assistance
and loans that seem to be (and sometimes are)
lower interest but not considered “aid,” means
that aggressive Chinese companies may be able
to accompany their offers of investment and bids
on contracts with low-interest loans from China
Eximbank that look like aid.
On the one hand, as Table 1 demonstrates, China’s
official aid is much more widely distributed
than would be expected if it was mainly used in
exchange for resources. This is also the case for
Chinese investment, which spans the continent,
27 Linden J. Ellis, Summary of “China Exim Bank in Africa,”
China Environment Forum, featuring Peter Bosshard and Ali
Askouri, Wilson Center, Washington, DC, March 22, 2007.
28 Peter C. Evans and Erica S. Downs, “Untangling China’s Quest
for Oil through State-Backed Financial Deals,” The Brookings
Institution Policy Brief #154, May 2006, p. 2.
29 The Stanley Foundation, “Africa at Risk or Rising? The Role of
Europe, North America, and China on the Continent,” summary
of a May 4–6 conference co-organized by the Stanley Founda-tion
and the Aspen Atlantic Group, Berlin, Germany, Stanley
Foundation, Policy Dialogue Brief, p. 8.
across all sectors, not simply in natural resources
(China’s largest investment in Africa to date has
been China Industrial and Commercial Bank’s
purchase of 20 percent of South Africa’s Standard
Bank for $5.5 billion). All the African countries
enjoying diplomatic relations with China have
received grants and zero-interest loans in recent
years. Chinese officials point to this as a contrast
between their aid approach and that of the
international aid system, where some countries are
more favored by donors.
On the other hand, China has made offers of large
loans and announced large investments in resource-rich
countries: Angola, Sudan, DR Congo, and
Nigeria. Some are linked to repayment in resources,
others are backed by resources as collateral. South
Korea has a similar approach, and India and
Malaysia have made similar offers in resource-rich
countries. Indeed, as noted above, 25 years ago
when China was only attractive as a market for
exports and a source of raw materials and lucrative
infrastructure contracts, Tokyo made similarly large
loan offers to Beijing with repayment in oil. Are
these government loans “aid”?
Three points are important here. First, many,
perhaps even most, of the large loans mentioned in
the press are not below market rates of interest.30
Loans to the large, resource-rich countries appear
less likely to be very concessional (interest rates
for large Chinese loans to Angola have ranged as
high as 6.6 percent). Second, the large resource-backed
loans do not come from the foreign aid
budget, and Chinese officials do not classify
them as “official development assistance,” but
30 For example, although the media repeatedly described a very
large loan granted to Angola in 2004 as having been made at an
interest rate of 1.5 percent, the loan was in fact made at LIBOR
(London Interbank Offered Rate) plus 1.5 percent. Indira Cam-pos
and Alex Vines, “Angola and China: A Pragmatic Partner-ship,”
working paper presented at a CSIS Conference, “Prospects
for Improving U.S.–China–Africa Cooperation,” December 5,
2007 (March 2008), p. 6.
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rather commercial transactions. Finally, whether
concessional or not, offering loans with resources as
collateral allows development to be accelerated in
countries with risky credit histories, but without the
electricity, potable water or roads that would attract
investment. As Paul Fortin, the French CEO of DR
Congo’s state-owned mining company Gécamines
commented when a similar Chinese package was
arranged for Congo in early 2008, “Congo doesn’t
have to wait for its infrastructure until it has the
money. Building starts immediately with the
natural resources as guarantee.” Unaware that Japan
and other countries concluded similar countertrade
deals in China two decades earlier, he continued,
“Except in oil-rich states, I know of no other deal
quite like this.”31
31 John Vandaele, “China Outdoes Europeans in Congo,” Inter
Press Service (Johannesburg), February 8, 2008.
Interestingly, NGOs have long criticized structural
adjustment programs for similar (if less direct)
dynamics.32 In exchange for loans from the World
Bank and the IMF, African governments were
required to privatize their state-owned natural
resource companies and open their economies to
foreign direct investment, generally from the West.
To repay the loans, they needed to export their
natural resources, again generally to the West. The
Chinese system forges a direct connection between
the loans and the resource exports. However, the
end result may not be very different.
32 Michelle Chan-Fishel and Roxanne Lawson, “Quid Pro Quo?
China’s Investment-for-Resource Swaps in Africa,” Development
(2007) 50, 63–68.
24 The German Marshall Fund of the United States
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Chinese Aid: Issues for
6Transatlantic Policymakers
China’s African Aid: Transatlantic Challenges 25
Transatlantic policymakers are concerned about
a number of issues that seem to be connected to
China’s rise as a provider of aid and development
finance in Africa. The norms governing aid and
finance have been changing in the West, and
practices that are common in Chinese lending
are no longer accepted or under attack in Europe
and the United States. China’s mix of state and
business also creates dilemmas for policy makers
in countries where business activities overseas are
not so heavily subsidized and where issues of a
government’s direct responsibility for the behavior
of its national firms are not so easily raised. This
section reviews five issues linked to Chinese aid:
subsidized export credits and tied aid, governance
and corruption, rogue regimes, environment and
social standards, and debt sustainability.
A. Tied Aid and Subsidized Export Credits
China’s 2006 announcement that its Eximbank
would provide Africa with $5 billion in preferential
loans and preferential export buyers credits
heightened transatlantic concerns about China’s
subsidized export credits and tied aid. Europe, the
United States, Canada, and Japan used to regularly
fight low intensity trade battles with each other
using heavily subsidized export credits (these were
generally not counted as aid) or mixing aid with
other kinds of credits. To placate taxpayers, donors
also usually tied their aid to goods and services
provided by their nationals, although studies
routinely showed that tied aid distorts trade and can
lead to higher costs for developing countries who are
unable to choose the most cost-effective suppliers.
OECD members have moved to reduce both
areas of concessional finance, leveling the playing
field and, in theory, increasing the effectiveness
of aid. Under the 1992 Helsinki Arrangement, a
set of rules on the provision of tied aid, part of
the Arrangement on Officially Supported Export
Credits, concessional export credits from OECD
governments were limited to projects that are
not commercially viable.33 In 2001, the OECD
Development Assistance Committee agreed to
recommend that all official development assistance
be untied except food aid and technical assistance.
As Chinese companies ratchet up the competition for
projects in Africa, European and American companies
believe that their low bid prices are influenced by the
preferential loans available from China Eximbank.
In many instances Chinese companies are simply
more competitive: their profit margins are slim,
and many have been working in Africa for decades
and know their market well. However, although the
non-transparency of most commercial and quasi-commercial
contracts makes it difficult to find out the
financing terms, it is clear that preferential loans are
easily available to companies exporting higher end
Chinese equipment and services, such as telecoms.
MOFCOM’s aid is generally tied to Chinese goods
and services or local costs, although permission
can be granted for Chinese project managers to use
loan funds to order equipment or machinery from
a third country. China Eximbank’s concessional
official development assistance loans are tied,
although not completely. Their website states that:
Chinese en • terprises should be selected as
contractor/exporter
• Equipments, materials, technology or services
needed for the project should be procured from
China ahead of other countries. In principle, no
less than 50 percent of the procurements shall
come from China.
OECD members have made much progress in
eliminating subsidized export credits and reducing
tied aid since their first historic agreement in
33 An exception can be made for financially viable projects in the
least developed countries if access to commercial finance is not
available.
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1978. Yet it has been difficult to move the West
away from the politically comfortable practice
where governments use aid in part to promote
their national firms. Although today 54 percent of
all OECD aid is tied, this progress is very recent.
In 2001, for example, the OECD reported that
92 percent of Italy’s official development aid was
tied, and 68 percent of Canada’s. The Chinese
believe that companies in wealthier countries got
a head start in global business with assistance like
subsidized export credits from their governments.
Now that Chinese firms are poised to become
global players, they are being judged by a new set
of rules—rules they had no part in crafting. For its
part, the OECD has welcomed China to attend its
meetings on export credits as a formal observer,
while its members warn that they may adjust their
rules to enable the West to compete with China on
more equitable terms.
B. Governance and Corruption
China has given aid to South Africa, Mauritius,
Cape Verde, and Botswana: Africa’s best-governed
countries. But it has also partnered with Chad,
Equatorial Guinea, and the Democratic Republic
of Congo, countries ranked by Transparency
International as some of Africa’s most corrupt. And
China imposes no governance conditionalities. A
recent Transparency International study found that
only Indian companies are believed to be more
corrupt than Chinese companies abroad. Many
on both sides of the Atlantic fear that China’s aid
(and non-aid finance) presents a threat to efforts to
improve governance and reduce corruption in Africa.
On the other hand, the long standing Chinese
record of non-interference in political matters is
welcomed in many parts of Africa as a contrast to
decades of aid based on economic and political
conditionality. Sierra Leone’s ambassador to China,
Sahr Johnny, reflected the view of many when he
said, “The Chinese are doing more than the G8 to
make poverty history … They don’t hold meetings
about environmental impact assessment, human
rights, bad governance, and good governance.
I’m not saying that it’s right, just that Chinese
investment is succeeding because they don’t set
high benchmarks.”34
Chinese views are on corruption are shaped by
their experience at home. Corruption is widespread
in China and other Asian countries such as South
Korea, yet it hasn’t derailed economic development.
Imposing economic sanctions or conditionality to
combat corruption is seen as harmful to Africans
because it hurts their opportunities for growth. Li
Rougu, president of China Eximbank, stated his
views bluntly at the 2007 meeting of the World
Economic Forum in South Africa: “We spend most
of the time discussing issues such as transparency
and good governance. And that would not help
because they are part of a development process. I
do not think that Britain was as transparent as it
is today some 200 years ago, let alone the United
States hundred years ago.”
However, China does work to avoid problems
with corruption in their aid, particularly when
it might affect repayment of Chinese loans.
Seventy-nine percent of China Eximbank loans
in Africa are given for government infrastructure
investments, a sector notorious for corruption in
most countries. To reduce corruption, monitor
implementation, and help ensure the repayment
of the loan, Chinese loans (whether MOFCOM
or Eximbank) are not disbursed to the borrowing
government. This contrasts with policies at
financial institutions like the World Bank, which
does disburse funds directly to governments. In
the Chinese system, the funds are held in Beijing
until a Chinese company requests payment for
goods or services by submitting an invoice and a
34 Lindsey Hilsum, “We Love China,” http://www.granta.com/
extracts/2616, June 2005.
26 The German Marshall Fund of the United States
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China’s African Aid: Transatlantic Challenges 27
progress report to the borrowing government. The
borrowing government authorizes the payment,
and Eximbank pays the Chinese company directly.
Corruption can still enter in, but the opportunities
will be fewer. Chinese contractors could pad their
expenses. They might provide kickbacks or collude
on the submission of invoices. But keeping the
money in China minimizes the opportunities for
wholesale disappearance of money that are possible
when banks disburse loan money directly to the
government.
C. Governance and “Rogue Regimes”
We don’t believe in embargoes—that just means that
the people suffer. From a practical consideration,
embargoes and sanctions can’t solve problems, just
like armed invasion cannot solve problems.
— Liu Guijin, Chinese Special Envoy to Africa
and Sudan
A second governance concern shared across
the Atlantic is the financial lifeline extended by
China to “rogue regimes” that otherwise might
bend to increased pressure from sanctions and
conditionality. Because of its support for janjaweed
militias that have massacred entire villages in
the Darfur rebellion, Sudan is perhaps the most
controversial of these regimes. Since 1996/97,
U.S. companies have been barred from financial
transactions, loans, and trade with Sudan, when
the country was listed as a sponsor of terrorism
(U.S. company Marathon Oil retains exploration
rights in a concession in southern Sudan). Most
other large Western firms have left the Sudan
oilfields, although several remain in other large
projects, including Lahmeyer International and
Siemens of Germany, France’s Alstom, and ABB
of Switzerland. A Canadian mining company, La
Mancha Resources, is the main foreign player in
Sudan’s non-oil minerals and mining.
Aid in the traditional sense is not a significant
factor here. China has given relatively little ODA to
Sudan, although there have been several large non-concessional
loans, and humanitarian assistance
to Darfur. However, it has supported Khartoum
in many other ways, including diplomatically, by
enabling Khartoum to drag its feet in allowing
foreign troops to help police Darfur. For years
China blocked sanctions at the United Nations,
and, along with other countries such as Malaysia
and India, provided considerable investment. It has
purchased the bulk of Sudanese oil and sold the
country arms.
Years of activism failed to change China’s support
for Khartoum and its policy of non-intervention.
This began to change in 2007. In March, China’s
main planning agency, the National Development
and Reform Commission, dropped Sudan from
the list of target countries for new investment by
Chinese oil and gas companies, a move regarded
as significant by Chinese observers.35 China
appointed a special envoy for Africa and Sudan,
and successfully persuaded Khartoum to allow UN
peacekeepers into Darfur in late 2007.36 “China
in my view has been very cooperative,’’ Andrew
S. Natsios, the former special envoy of President
Bush to Sudan, said in February 2008. ‘’The level of
coordination and cooperation has been improving
each month.’’37 Yet Chinese policy has consistently
opposed economic sanctions.
Chinese ODA to troubled Zimbabwe has also
been relatively limited, with loans on concessional
terms and grants for food aid, some equipment,
and the renovation of the stadium built by
35 Richard McGregor, “Iran, Sudan and Nigeria off China Incen-tive
List,” Financial Times, March 2, 2007.
36 Erica Downs China Security, n. 63 writes that China is “re-thinking
a five decade old policy of non-interference.” In support
of this, Downs cites an article by Linda Jakobson, “The Burden
of ‘non-interference,’” China Economic Quarterly, Quarter 2
(2007), pp. 14–18.
37 Lydia Polgreen, “China, in New Role, Uses Ties to Press
Sudan on Troubled Darfur,” The New York Times, February 23,
2008; see also Chris Buckley, “China urges Sudan to seek Com-promise
in Darfur,” Reuters, March 7, 2008.
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Chinese aid in 1987, probably amounting to less
than $30 million between 2000–06. But again, as
with Sudan, China’s investments and other forms
of economic engagement were of some help in
keeping Mugabe in power, despite the collapse
of much of the economy. In 2007, the Chinese
leadership appeared to be debating its involvement
in Zimbabwe: reports that aid would be limited to
humanitarian assistance circulated in September.
The Chinese embassy in Harare denied these
reports, announcing plans to build an agriculture
technology demonstration center, two primary
schools, and a hospital. But within weeks, China’s
special envoy to Africa Liu Guijin repeated that
China would indeed limit its aid. In the midst of
this, China Development Bank provided what was
probably non-concessional finance to develop three
projects: the Victoria Falls Airport (a project South
Africa was also considering financing), a tobacco
enterprise, and a chromium mine.
D. Environment and Social Standards
Funding for dams, tropical hardwood timber
projects, and mining all pose risks for the
environment in Africa. The lack of transparency on
concessional (and non-concessional) loans makes
it difficult to trace official connections between the
Chinese government and some of the projects with
the worst environmental impact: illegal harvesting
of old-growth timber or illegal fishing. But Chinese
banks have clearly funded a number of controversial
projects in other sectors, some on concessional
terms that could potentially qualify as aid.38 Chinese
companies are involved in dozens of controversial
dam projects across Africa, including the notorious
Merowe Dam in Sudan. Africans have criticized the
Chinese practice of shipping in Chinese labor to
38 For two excellent overviews, see Peter Bosshard, “China Ex-imbank’s
Role in Financing Infrastructure in Africa,” May 2007,
http://internationalrivers.org/files/ChinaEximBankAfrica.pdf,
and Michelle Chan-Fishell, “Time to Go Green: Environmental
Responsibility in the Chinese Banking Sector,” Friends of the
Earth/Bank Track, May 2007.
work on aid projects, while poor safety standards
and labor practices periodically spark protests on
both aid and non-aid investment projects.
As the World Bank found in an earlier era, local
governments in developing countries often
ignored requirements to consult and compensate
project-affected people, and failed to resettle
them in adequate new homes and villages. The
Bretton Woods institutions, OECD export credit
agencies, and almost 50 commercial banks active
overseas have now negotiated rules and norms for
environmental and social appraisals of potential
projects. Almost 60 international banks have adopted
the voluntary “Equator Principles” for environmental
and social assessment, monitoring, and mitigation.
Although one Chinese bank (Fujian-based Industrial
Bank) has declared it will implement the Equator
Principles, the main Chinese banks have largely been
outside this process (indeed, only a handful of banks
from developing countries have adopted the Equator
Principles). European Investment Bank president
Philippe Maystadt famously told the Financial Times
that Chinese banks had “snatched projects from
under the EIB’s nose,” with their lack of conditions
on labor standards and environmental protections.
Much as the World Bank used to do, the Chinese
have generally failed to intervene to raise the
environmental and social standards applied
locally, considering this a matter for the borrowing
government. At present, it is local standards and
rules on environmental protection that are likely to
be operative in any given Chinese project. Recently,
Chinese ambassadors overseas and the president of
China’s Eximbank have pushed Chinese companies
to employ more local labor, and to respect local
laws. Chinese banks could do more, perhaps, by
requiring companies seeking financing to provide
plans for localization of labor.
28 The German Marshall Fund of the United States
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China’s African Aid: Transatlantic Challenges 29
E. Debt Sustainability
Europe has tried to end Africa’s debt in the past and
will not do the same with Chinese debt. … We hope
China takes that into account.
— João Cravinho, secretary of state for foreign
affairs, Portugal, and president of the EU, 2007
Headlines such as “China loans create ‘new wave
of Africa debt’,” and “EU will not cover Chinese
loans to Africa,” reflect a transatlantic concern
that Chinese loans will reignite a debt crisis
in African countries only now emerging from
extensive debt write-offs. The lack of transparency
on Chinese aid and lending fuels reasonable fears
that the high figures mentioned in the media are
creating a veritable Everest of debt that would
be impossible to service. Many in the traditional
donor countries also believe that Chinese lending
will be “free-riding” on the back of debt relief paid
for by wealthier countries. As their parliaments
appropriate funds to repay African countries’ debts
for them, those same countries might be freed to
take out, and actually repay, new loans from China.
The evidence on new debt in Africa’s poorest
countries is not robust, and that on new debt from
non-traditional donors (Russia, China, India,
South Korea) is particularly poor. The available
information suggests that Chinese loans closely
fit a country’s ability to repay.39 The larger, less
concessional loans are made to countries like
Angola, Congo, Nigeria, and Sudan, all with rich
deposits of natural resources that can serve as
collateral for loans. Smaller, poorer countries, such
as Togo, Mali, Guinea, and Burundi, tend to receive
grants and zero-interest loans.
In keeping with this, China Eximbank president
Li Ruoguo has argued that his bank takes debt
sustainability into account when making loans,
but he has also emphasized that his bank’s lending
is based on development sustainability. Countries
whose balance sheets may not look good sometimes
have untapped capacity to service future debt,
if borrowing goes for productive projects, such
as electricity, or an export-oriented investment.
Eximbank figures this future capacity into its
lending decisions. Currently, the major IFIs do not.
An OECD study pointed out that, in Angola and
Sudan, Chinese investment and the higher prices
stimulated by China’s demand for raw materials
has considerably improved debt-distress indicators
in both countries.40 Critics have also pointed out
that the traditional donors have not honored their
pledges to provide more aid, and the large financing
gap has enhanced the attractiveness of Chinese loans.
39 Helmut Reisen and Sokhna Ndoye, “Prudent versus Impru-dent
Lending to Africa: from Debt Relief to Emerging Lenders,”
OECD Development Centre Discussion Paper No. 268, January
2008.
40 Reisen and Ndoye (2008), p. 30.
